Palantir Technologies(NASDAQ: PLTR) has witnessed an incredible improve in its market worth in 2024 due to a outstanding surge of 313% within the firm’s inventory worth up to now this yr.
The firm has a market cap of $162 billion as of this writing, up from round $35 billion firstly of the yr. However, a more in-depth take a look at Palantir’s valuation signifies that it could have run forward of itself. The software program platform specialist has a price-to-sales ratio of a whopping 63, whereas its trailing earnings a number of stands at 345.
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Not surprisingly, Wall Street is not anticipating a lot upside from the inventory over the following yr. The 20 analysts overlaying Palantir have a 12-month median worth goal of $38, which might be a 46% drop from present ranges. If that does certainly occur, its valuation may drop huge time within the coming yr.
Of course, the corporate could possibly justify its costly valuation due to the quickly rising demand for synthetic intelligence (AI) software program platforms, a market the place it’s the main participant. But if cracks emerge in Palantir’s progress story, particularly as stiff competitors grows from larger and smaller gamers within the enterprise AI software program area, there’s a good likelihood buyers will begin reserving income — main the inventory to fall.
This may pave the way in which for Arm Holdings(NASDAQ: ARM) and Applied Materials(NASDAQ: AMAT) to overhaul Palantir’s valuation within the subsequent yr. Let’s see why these two corporations could also be price greater than Palantir in 2025.
With a market cap of slightly below $148 billion, Arm Holdings is not very removed from Palantir’s valuation. And Arm inventory has delivered spectacular returns of 87% in 2024 because of the necessary function the corporate performs within the world semiconductor market.
Arm licenses its structure and mental property (IP) to semiconductor corporations and client electronics producers in order that they will develop several types of chips similar to central processing items (CPUs), graphics processing items (GPUs), and microprocessors, amongst different issues. The firm’s chip structure is used throughout a number of industries together with smartphones, information facilities, computer systems, and automaking.
Arm enjoys a wholesome market share in lots of verticals. For occasion, in cell purposes, it has a market share of greater than 99%. Its share of the patron electronics chip market stands at 30%. Even higher, it’s gaining floor in fast-growing niches similar to cloud computing and networking gear, the place it now instructions 15% and 28% market shares, respectively, as in comparison with 9% and 23% a few years in the past.
And its share of the automotive chip market has elevated to 47% from 43% in a few years. In all, Arm estimates that its structure and IP management 47% of the worldwide chip market’s $214 billion worth. The firm expects to learn from the rising complexity of chips deployed in its finish markets due to the emergence of applied sciences similar to AI.
And that is why it has seen a rise in demand for its structure licenses. It ended the second quarter of fiscal 2025 with 39 Arm Total Access licenses, up from 33 within the previous quarter. The variety of Arm Flexible Access licensees elevated to 269 from 241 within the previous quarter.
This improve within the variety of licenses it is promoting bodes properly as a result of chips developed utilizing these licenses will end in royalty income. The firm already will get round 50% of its royalty income from chip architectures launched greater than 10 years in the past.
Management expects its income within the present fiscal yr to leap to $3.95 billion from $3.23 billion in fiscal 2024, a rise of twenty-two%. Its earnings steering of $1.55 per share can be a 22% improve from fiscal 2024 ranges of $1.27 per share.
The firm’s progress is anticipated to speed up within the subsequent fiscal yr, with income predicted to leap 25% to $4.93 billion and earnings anticipated to extend by 32% to $2.05 per share. Analysts forecast this stronger progress will result in extra upside for the inventory. The 12-month median worth goal of $160 can be a 14% soar from present ranges.
As such, there’s a good likelihood that it may overtake Palantir’s valuation subsequent yr, particularly contemplating that Arm’s earnings progress then is anticipated to be stronger than Palantir’s estimated bottom-line progress of 25%.
Applied Materials hasn’t set the inventory market on hearth in 2024, having gained simply 13% up to now this yr, however 2025 could possibly be a lot better for the corporate. Global spending on semiconductor gear is anticipated to extend by a a lot quicker tempo of 24% in 2025 following a 4% improve this yr, in response to the business affiliation SEMI.
Applied Materials sells manufacturing gear and gives companies and different software program for the semiconductor and show industries. The firm’s income in fiscal 2024 (which ended on Oct. 27) elevated simply 2% to $27.1 billion. Its adjusted earnings, however, jumped 7% to $8.65 per share.
Consensus estimates are projecting a 9% improve in its income within the present fiscal yr to $29.6 billion, together with a ten% improve in earnings to $9.54 per share. And there’s a good likelihood the corporate has stronger progress due to the rising demand for AI-related chipmaking gear.
Management mentioned on its November earnings convention name that the booming demand for reminiscence capability in AI information facilities led to a 60% improve within the firm’s gross sales of DRAM (dynamic random-access reminiscence) gear in fiscal 2024.
This pattern is more likely to proceed because the demand for high-bandwidth reminiscence (HBM) that is deployed in AI information facilities is anticipated to double subsequent yr. At the identical time, Applied Materials is more likely to profit from the transition to extra superior chipmaking know-how for tackling AI workloads, which ought to improve its addressable market considerably.
All this tells us why analysts are upbeat in regards to the firm’s prospects over the following yr. The inventory carries a 12-month median worth goal of $225, which might be a 23% improve. Given its present market cap of virtually $151 billion, it will not be shocking to see it overtake Palantir’s valuation over the following yr.
Applied Materials trades at simply 19 instances ahead earnings. So, if the market decides to reward its stronger progress with a richer valuation, the inventory may simply ship stronger good points than analysts are estimating.
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Harsh Chauhan has no place in any of the shares talked about. The Motley Fool has positions in and recommends Applied Materials and Palantir Technologies. The Motley Fool has a disclosure coverage.
Prediction: 2 Stocks That Will Be Worth More Than Palantir Technologies 1 Year From Now was initially revealed by The Motley Fool
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